Commodities take another hit on China's currency devaluation

China has devalued its currency by 1.9 percent in a clear effort to help out exports. You can't blame them. Exports were down more than 8 percent in the most recently released (July) figures compared to the same period a year ago.

But wait a minute. Wasn't China supposed to be moving away from an emphasis on exports, and concentrating on developing the consumer market? This seems to be an acknowledgement that strategy is not working so well.

It's not even clear that devaluing the yuan 1.9 percent will make much of a difference in exports. Marc Chandler at Brown Brothers Harriman summed up the feelings of many, "[T]oday's depreciation is unlikely to have a perceptible impact on the competitiveness of China's exports."

So what are the Chinese trying to do? The purpose seems to be to introduce more market liberalization measures. This would be in line with one of the Chinese government's main objectives: to make the yuan a reserve currency. Does this help them achieve that goal? Making the yuan more market-based probably does help that cause.

There has been a clear impact on commodities, with U.S. benchmark West Texas Intermediate crude down 2.5 percent, copper down 3.3 percent, aluminum down 2.5 percent and most emerging market bourses down 1 to 2 percent.

Export-led economies like Germany are also weak Tuesday. Carmakers there are down.

The final issue: Will this ignite a currency war? There's no agreement on this, but it's hard to believe that other central banks—particularly in Asia—will not take some action to offset the impact. However, the currencies of most emerging markets are already weak against the dollar. You could argue this is China catching up.

One thing is for sure. This is not over. This will almost certainly be the start of a series of additional measures to stimulate the economy in China, including cutting interest rates.

Will this have any impact on the timing of the Fed's expected rate hike? Given that the U.S. central bank's mandate is job creation and watching inflation, it would seem not to be a major factor in its thinking. However, Treasury yields are down Tuesday morning.